Posts Tagged ‘Goldman Sachs’

Bill Black, an expert on banking and white-collar crime, described how Donald Trump’s appointees to the Federal Reserve Board are revising “stress tests” to free Goldman Sachs and Morgan Stanley from a requirement to prove they are solvent enough to weather the next recession.

To pass the “stress test,” they’d have to put a larger fraction of their profits into capital reserves. Black said they could easily do this, but it would cut into bonuses and dividends.

He also noted that Germany’s Deutsche Bank in Germany can’t even pass the easier stress test. Deutsche Bank is Germany’s largest bank and, according to Black, the only large bank willing to lend to Donald Trump’s businesses.

A Goldman Sachs report says that the way for biotech companies is through medical treatments, not medical cures.

Selling medical treatments provides a stream of income that continues indefinitely. Selling medical cures provides one-time sources of income, and even these may dry up if the disease disappears.

The moral feelings of any normal person will be outraged by this, but the logic is watertight, obvious and, according to the report, supported by experience.

You can’t stop for-profit companies in a free enterprise economy from pursuing the course that is most profitable, and you can’t stop analysts for investment companies from noticing the most profitable course.

Since cures are better than treatments (although treatments are useful), how can resources be shifted to cures?

A free market fundamentalist would say that the solution is to raise prices of cures to equal the lifetime cost of a treatment, plus a premium.

A neoliberal would propose subsidizing biotech companies’ work on cures. A left-wing liberal would propose requiring biotech companies to devote a certain percentage of their research budgets to working on cures.

A radical would say that for profit-companies operating in a free market cannot be counted on to produce cures, and we should look instead to government or philanthropic institutions if we want a cure for cancer, AIDS or other life-threatening diseases.

Historically few if any medical breakthroughs have come from for-profit companies. Dr. Jonas Salk developed the Salk vaccine for polio as head of a research laboratory at the University of Pittsburgh.

Dr. Alexander Fleming, the discoverer of penicillin, was a professor of bacteriology at St. Mary’s Hospital in London. Penicillin and other antibiotics came into widespread use through efforts of the U.S. military during World War Two.

Probably the most profitable and widespread drug developed by a private company was aspirin—a great example of a drug that generates a continuing revenue stream. Aspirin of course is of great benefit. It’s just not the same thing as the Salk vaccine or penicillin.

So here again, the supposedly radical policy is to adopt time-tested policies that have worked in the past, while the supposedly un-radical policies are justified by theory and not by experience.

Now Trump has put two former Goldman Sachs executives in charge of economic policy—Steve Mnuchin, former Goldman partner, as Secretary of the Treasury, and Gary Cohn, former president of Goldman, as his top economic adviser.

President Trump has put a portrait of Andrew Jackson, the great enemy of concentrated financial power, in his office. But his appointments show that he will be a champion of the moneyed establishment. Those who voted for him in hope he would be a friend to working people are going to be disappointed.

There are two kinds of revolving doors between business and government. The first is when people come from the world of business, usually temporarily, to make policy in government.

I don’t think this is necessarily wrong. If you are making policy on a complicated field, such as finance, you want people who know something about the subject, and often as not that will that will be people who earn a living in that field.

Joseph P. Kennedy Sr. was a stock market speculator in the 1920s, trading on inside information and manipulating the market. But when he became the first chairman of the U.S. Securities and Exchange Commission (1932-1935), he outlawed this practices. His experience made him a better regulator.

The second is when government regulators and policy-makers plan to move on to jobs in the industries they regulate and make policy for.

Neil Barofsky, who was special inspector general in charge of the oversight of the Troubled Asset Relief Program (TARP) from 2008 through 2011, wrote about how he was warned that he would make himself unemployable by being too zealous about doing his job, but that he might have a good post-government career if he toned town his reports.

He said he always realizing that doing his job was incompatible with a future job in finance or a higher federal appointment. He is now a law school professor. He is an exception.

This chart, produced by Goldman Sachs and reproduced by FT Alphaville and Barry Ritholtz, shows how world trade has grown in the past half-century.

In 1960, a quarter of world output was for export. Now it is well over half.

There is a benefit in being able to buy things that are produced in distant lands. There also is a risk in depending on long and vulnerable supply chains for what you need. We the people and our governments need to think about what balance to strike.

Back in 2006, Donald Trump said he was sort of looking forward to the coming housing crash, because he could cash in—presumably by buying up distressed properties.

However, Trump didn’t do anything to cause the housing crash. In contrast, Hillary Clinton’s benefactor and social friend, Lloyd Blankfein of Goldman Sachs, not only benefited from it, but helped to bring it about.

His firm bought up subprime mortgages. That meant lenders could make “liar’s loans” they knew would never be paid back, and eliminate their risk by selling them to Goldman Sachs.

Goldman Sachs converted the mortgages into securities, like stocks or bonds, and sold them on the open market. They got rating agencies to label the securities as high quality investments, even though Goldman Sachs management knew they weren’t.

They made other investments based on the assumption that the market would crash and the securities would become worthless.

All this happened when Lloyd Blankfein was CEO of Goldman Sachs. He became CEO in 2006 and before that was chief operating officer.

Goldman Sachs has given Hillary Clinton $675,000 for making three speeches, and husband Bill Clinton $1.55 million in speech fees.

The firm’s employees as a group are among the top five contributors to Hillary Clinton’s campaigns.

Goldman Sachs also hosted the Clinton Global Initiative; the video above shows a picture of Hillary Clinton and Lloyd Blankfein at a CGI meeting.

How likely is it that a Clinton administration would prosecute Goldman Sachs officials for financial fraud? How likely is it that a Clinton administration would bring financial malpractice under control? The likelihood is next to zero, in my opinion.

What did Hillary Clinton say in her three 2013 speeches for Goldman Sachs that was worth $675,000 to hear?

So far she has refused to release the transcripts, but reporters for POLITICO interviewed members of the Goldman audience on what she said.

Clinton offered a message that the collected plutocrats found reassuring, according to accounts offered by several attendees, declaring that the banker-bashing so popular within both political parties was unproductive and indeed foolish.

Striking a soothing note on the global financial crisis, she told the audience, in effect: We all got into this mess together, and we’re all going to have to work together to get out of it. What the bankers heard her to say was just what they would hope for from a prospective presidential candidate: Beating up the finance industry isn’t going to improve the economy—it needs to stop.

The crooked financial dealings of Goldman Sachs were an important factor in the financial crash of 2008. The company wrote sub-prime mortgages its brokers knew could not be paid off, repackaged them to seem like secure investments and then after unloading them on gullible customers, made financial bets that they would become worthless. Many people lost their homes and savings.

Matt Taibbi of Rolling Stone summed up the situation well.

The Clintons … have by now taken so much money that when they stand in a room full of millionaires and billionaires, they can use the word “we” and not have it sound odd. The money has irrevocably moved them to that side of the rope line. On that side of the line, public anger isn’t legitimate, but something to be managed and waited out … .

Goldman Sachs played much the same role in the Greek debt crisis as it did in the U.S. subprime mortgage crisis.

The bank’s executives induced the governments of Greece and Italy to make foolish investments. It then unloaded those investments on suckers, and then made financial bets that these investments would crash.

Now European officials who came out of Goldman are trying to punish the people of Greece, and maybe of Italty tomorrow, for the result.

This is not to say that the Greek and other governments would not have gotten into trouble by themselves or that Goldman Sachs was the only bank that contributed to the crisis. But, as the linked articles below indicate, Goldman bankers helped the crisis along, profited from what they did and continue to influence government policy.

Senator Elizabeth Warren recently complained about Citigroup’s influence on the congressional budget and legislative process. This chart from the Washington Post shows Citi has a strong voice in the executive branch as well. So do Goldman Sachs and other big Wall Street firms.

I think this chart provides as good an explanation as any as to why the Obama administration does not prosecute individual bankers for financial fraud, does not propose breaking up the “too big to fail” institutions and protects bankers from the consequences of risky speculation.

Carmen Segarra, a bank examiner assigned by the Federal Reserve System to Goldman Sachs, was fired after refusing to withdraw a report criticizing Goldman.

She made tape recordings showing how subservient the other Fed examiners were to a company they were supposed to regulate.

The country is being run by the kind of people that Theodore Roosevelt called “the malefactors of great wealth” and “the criminal rich class.” The fact that certain people are rich does not, in and of itself, entitle them to respect or deference, let alone immunity from laws and regulations that other people have to obey.

State governments in the USA get increasing amounts of revenue from court settlements from corporations accused of wrongdoing. As The Economist reported, these settlements amount to big money.

So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations.

And that is just the financial institutions. Add BP’s $13 billion settlement over the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more. [snip]

Rhode Island’s bureaucrats have been on a spending spree courtesy of a $500 million payout by Google, while New York’s governor and attorney-general have squabbled over a $613 million settlement from JPMorgan. [snip]

Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s license to operate on Wall Street. Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear.

There are two ways of looking at this. One is that federal prosecutors and state governments are shaking down corporations for minor offenses, much as local police and courts in communities such as Ferguson, Missouri, shake down residents for minor traffic offenses. The other is that corporate officers are buying their way out of individual criminal liability at stockholders’ expense.

I think the second alternative is the more common, while The Economist writer apparently disagrees. Whichever is the case, as state government becomes more dependent on corporate settlements for revenue, the more demand there will be for windfalls from future settlements. If shakedowns aren’t common now, they will become so. There is no good alternative to paying normal expenses of government through taxes.

The Economist’s writer is right to say that the big problem with these settlements is that they are made in secret. Nobody knows the evidence against the corporations, and nobody knows what, if anything, they admitted to doing.

Senators Elizabeth Warren and Tom Coburn have proposed a bill that would require the terms of the settlement to be made public, and for the prosecutors and regulators to write explanations of why the cases did not go to trial. That would be a good start.

The Mafia, as has been said, is not an equal opportunity employer. But even if it was an equal opportunity employer, it would still be a criminal organization.

Likewise, while Goldman Sachs is cultivating a reputation for being gay-friendly, it is still the same financial predator that is always was, still what Matt Taibbi called the “giant vampire squid,” inserting its tentacles into every crevice of the American economy and sucking out the blood.

Human Rights Campaign, the gay rights organization, honored Goldman Sachs at its annual dinner last year, and named Lloyd Blankfein, its CEO, as its national corporate spokesman for gay marriage. It’s nice that a few gay people will get a shot at high-paying jobs at Goldman, but that doesn’t entitle the firm to a plenary indulgence, or get-out-of-jail-free card, or whatever you want to call it from the harm it has done to ordinary Americans, including gay people, through its financial manipulations.

As Matt Taibbi has documented, former and future Goldman officials in government successfully lobbied for repeal of the regulations that held banks back from reckless speculation with their depositors’ money. They then pursued a policy of pump and dump, bidding up the price of investments, such as subprime mortgages, that they knew were worthless, then bailing out at the key moment and leaving the suckers holding the bag.

Goldman and similar Wall Street manipulators did more harm than to just bankrupt a few unwise investors. Their financial manipulations brought about the Wall Street crash of 2008 and the wave of layoffs and mortgage foreclosures that followed. Gay people suffered as much as their straight neighbors. As Kathleen Geier pointed out, gay people as a group as not especially affluent — contrary to the way they’re typically depicted on TV.

Some of us liberals like to point out how conservatives can be suckered into voting against their economic self-interest by cynical appeals to feelings about social and cultural issues[1]. However this may be, they aren’t the only ones.

Hillary Clinton recently addressed a meeting of Wall Street financiers, which was set up by Goldman Sachs, to tell them that she’s on their side, Politico magazine reported.

Clinton offered a message that the collected plutocrats found reassuring, according to accounts offered by several attendees, declaring that the banker-bashing so popular within both political parties was unproductive and indeed foolish.

Hillary Clinton

Striking a soothing note on the global financial crisis, she told the audience, in effect: We all got into this mess together, and we’re all going to have to work together to get out of it.

What the bankers heard her to say was just what they would hope for from a prospective presidential candidate: Beating up the finance industry isn’t going to improve the economy—it needs to stop.

And indeed Goldman’s Tim O’Neill, who heads the bank’s asset management business, introduced Clinton by saying how courageous she was for speaking at the bank. (Brave, perhaps, but also well-compensated: Clinton’s minimum fee for paid remarks is $200,000).

Certainly, Clinton offered the money men—and, yes, they are mostly men—at Goldman’s HQ a bit of a morale boost. “It was like, ‘Here’s someone who doesn’t want to vilify us but wants to get business back in the game,’” said an attendee. “Like, maybe here’s someone who can lead us out of the wilderness.”

Clinton’s remarks were hardly a sweeping absolution for the sins of Wall Street, whose leaders she courted assiduously for financial support over a decade, as a senator and a presidential candidate in 2008. But they did register as a repudiation of some of the angry anti-Wall Street rhetoric emanating from liberals rallying behind the likes of Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio).

And perhaps even more than that, Clinton’s presence offered a glimpse to a future in which Wall Street might repair its frayed political relationships.

I would have thought that the Wall Street financial community would be highly pleased with President Barack Obama. His administration has bailed out the Wall Street banks from their bad investments, and held them harmless. It continued the TARP bailouts and supported Federal Reserve chair Ben Bernanke’s policy of pumping money into the banking system by buying up toxic assets.

The Obama administration has refrained from prosecution of financial fraud in the wake of the Wall Street collapse, in sharp contrast to the many prosecutions of savings and loan officers in the administration the elder George H.W. Bush. It has declined to investigate illegal mortgage foreclosures or to give meaningful relief to under-water mortgage debtors.

But, according to Politico, the Wall Street community is miffed at Obama, partly because of the imposition of the so-called Volcker rule, which limits speculative investments with money covered by government guarantees, and also because Obama fails to manifest camaraderie or respond to their wishes. That is why they give Obama “only” $6 million in the last election, compared to the $16 million he got in 2008.

What the article shows is that money still talks louder than public opinion. The popular positions—breaking up the “too big to fail” banks, prosecuting financial fraud—are the underdog positions in Washington.

Last night I saw an Charles Ferguson’s “Inside Job,” a documentary movie on the Wall Street crisis. It is excellent journalism and excellent cinema. Most people who see this movie will leave it not just angry, but better-informed. Ferguson both names the culprits behind the crisis, and clearly explains the deeper systemic problems.

Ferguson makes the point that there has been no criminal prosecution of financial manipulators, unlike in the lesser savings and loan crisis of an earlier era. Maybe there is not only such a thing as “too big to fail,” but “too powerful to prosecute.” The Charles Keatings of that era had much less clout than the Henry Paulsons of today.

Ferguson does not go easy on the Bush administration, but he shows origins of Wall Street’s capture of the government in the Reagan and Clinton administrations and its continuation in the Obama administration which, as in so much else, continues the Bush policies with many of the Bush appointees.

He shows the conflicts of interest among top economists, who receive big consulting and directors’ fees from the financial industry they supposedly are analyzing impartially. Long ago there was a scandal when radio disc jockeys accepted payola from record companies to play certain records. We ought to be equally scandalized about payola to academics. But in fact, these economists are still treated with respect by officialdom and the press, while the economists whose warnings proved true are still regarded as marginal figures.

Our free market system is supposed to be a way to reconcile self-interest with the public interest. As Adam Smith wrote in The Wealth of Nations –

It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.

Smith patronized the butcher, the brewer and the baker that gave him the best meat, beer and bread for the best price. So it was in their interest to give him the best product for the best price that was compatible with making a profit. You didn’t need some mastermind, according to his theory, trying to figure out what was a just price.

Most human beings act in their own self-interest. Certainly I do. As a newspaper reporter, I was fortunate in being able to do work that I liked, and that I thought at the time served a public purpose, but I expected to be paid, and I would not have worked if I had not been paid. Nor did I ever turn down a pay raise because of the possibility I was being overpaid compared to some more-deserving fellow reporter.

At the same time, there are things I would not have done for money. As a newspaper reporter, I would not have written something I thought untrue to keep in the good graces of an editor or publisher. I felt a certain loyalty to my employer and to professional standards that was over and above my paycheck.

People who create value deserve to be rewarded. People who create things of great value deserve to be richly rewarded. At the same time our capitalistic free-enterprise system doesn’t have a good way to distinguish between people who create value and people who milk the system.